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Sebi may relax norms for sale of bonus shares in an IPO

As part of its efforts to revive primary markets, Sebi may relax restrictions on sale of bonus shares held by promoters or other investors during an Initial Public Offer of a company, even if these shares have been held for less than a year.

As per the existing regulations, shares that have been held for a period of less than a year are not eligible to be offered for sale in an IPO. This restriction applies to all classes of shares, including bonus shares or equity granted to existing shareholders on the basis of their prevailing stake.
According to senior officials, the board of Securities and Exchange Board of India (Sebi) will consider this reform measure in the primary markets this week which has finalised after taking into account suggestions made by the regulator's Primary Market Advisory Committee and representations from market participants.

Currently, many companies undertake a bonus issue before filing draft offer documents on account of expanding the capital base and thereby providing better liquidity in the scrip post- listing and presently such firms plan an IPO after a year from such bonus issues.

Under the new norms, bonus shares issued in the last one year prior to filing of the draft documents will also be allowed to be offered for sale, provided that these bonus shares were issued out of the reserves existing one year before filing draft papers.

The new norm would help issuers to access the market immediately rather than wait for one year after a bonus issue.
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